U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
<TABLE>
<CAPTION>
<S> <C>
For the transition period from _____________ to _____________ Commission file number: 33-95758
</TABLE>
INVESTMENT INCOME PROPERTIES OF AMERICA, INC.
----------------------------------------------
(Name of Small Business Issuer in its Charter)
Delaware 65-0544042
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
950 North Federal Highway, Suite 219 Pompano Beach, Florida 33062
- ------------------------------------ -----------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 954-783-2004
Securities registered under Section 12(b) of the Exchange Act: none
Securities registered under Section 12(g) of the Exchange Act: none
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
or (2) has been subject to such filing requirements for the past 90 days.
Yes X No__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
best of registrant=s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $ 203,429.00
-----------
The market value of the voting and non-voting common equity held by
non-affiliates is $0.
-------------------------------------------------------------------
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
There were 374,125 shares of the Registrant's Common Stock, par value $.001 per
share outstanding on December 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format (check one): Yes_____ No X
<PAGE>
PART I
Item 1. Business
- ------ --------
Overview
Investment Income Properties of America, Inc. (the ACompany@) was
incorporated in the State of Delaware on January 4, 1995. Initial capitalization
occurred on January 13, 1995. The business of the Company is to invest primarily
in existing residential and commercial properties in the Southeast and
Southwestern Regions of the United States. On June 30, 1997, the Company
purchased the 950 Professional Building, a three story office complex consisting
of 40,000 sq. ft., having an address of 950 North Federal Highway, Pompano
Beach, Florida. The Company will use one suite on the property as its corporate
headquarters. The complete investment objectives and policies of the Company are
described under the caption "Investment Objectives and Policies" on pages 31
through 37 of the Company's Prospectus dated February 15, 1996 (the
"Prospectus") filed with the Securities and Exchange Commission as part of the
Company's Registration Statement on Form S-11 (Registration No. 33-95758), which
are hereby incorporated by reference.
In connection with each of its property acquisitions, the Company will
obtain a Phase I Environment Report, and such additional environmental reports
and surveys as are necessitated by such preliminary reports. Based on such
reports, the Company is not aware of any environmental situations requiring
remediation at its properties which have not been or not currently being
remediated as necessary.
As of the end of 1997, the Company owned only one property. However, the
following is a summary of three properties the Company has considered to be
purchased during 1997.
The Company entered into an agreement on October 2, 1996 to purchase the
Kendale Gardens Apartments in Miami, Florida. The purchase price was $7,135,000
with a closing date of November 15, 1996. A deposit of $10,000 was required at
the time the agreement was signed. On December 17, 1996, the agreement to
purchase Kendale Garden Apartments dated October 2, 1996, was amended. The
amended agreement reduces the purchase price to $6,925,000 if purchased by
February 28, 1997. A deposit of $15,000 was required upon the execution of the
amended agreement. On February 28, 1997, the agreement to purchase Kendale
Gardens Apartments dated December 17, 1996, was amended. The amended agreement
increases the purchase price to $6,975,000, if purchased by April 30, 1997. A
deposit of $25,000 was required upon the execution of the amended agreement. On
June 5, 1997, the agreement was amended to extend the closing date to July 31,
1997. A deposit of $25,000 was required upon the execution of this amendment.
The apartment building purchase will be financed by a private placement or a
public offering of the Company's stock. In June 1997, these deposits were
written-off due to the purchase not materializing.
The Company entered into an agreement on December 20, 1996 to purchase
the Spring House Apartments in Tamarac, Florida. The purchase price was
$16,490,000 with a closing date of February 28, 1997. A deposit of $25,000 was
required and paid in January 1997. The apartment building purchase will be
financed by a private placement or a public offering of the Company's stock. On
January 21, 1997, the agreement to purchase Spring House Apartments dated
December 20, 1996, was amended. The agreement extends the closing date to March
28, 1997. A deposit of $100,000 was required upon the execution of the amended
agreement. On March 25, 1997, the agreement to purchase Spring House Apartments
dated January 21, 1997 was amended. The agreement extends the closing date to
May 5, 1997. A deposit of $25,000 was required upon the execution of the amended
agreement. As of June 5, 1997, the Company has not closed on the property and
has $175,000 in nonrefundable deposits toward the purchase. In June 1997, these
deposits were written-off due to the purchase not materializing.
1
<PAGE>
Item 2. Properties
- ------ ----------
On June 30, 1997, Investment Income Properties of American (the
"Company") purchased 950 Professional Building, a three story office complex
consisting of 40,000 square feet, having an address of 950 North Federal
Highway, Pompano Beach, Florida (the "Property"). The Company purchased the
Property for $2,600,000. The purchase was financed through a purchase money
mortgage of $2,080,000 and funds provided through loans by individuals who also
own shares in the Company. The mortgage bears interest at 1% below the prime
rate, is payable monthly and is collateralized by the property. During any time
the mortgage is outstanding, the seller has the option to convert the mortgage
and note to common stock of the Company. Title to the Property was conveyed by a
fee simple warranty.
The Property consists of 31 rental suits, 29 of which are currently
leased to 29 tenants that are engaged in a variety of businesses, including
financial services, investment banking, publishing, computer technology, health
care services, accounting and law. The suites provide for a combined total of
26,000 square feet of rentable area. The Company purchased the Property from a
third party, unaffiliated with the Company, that had owned the Property and
leased office space thereon for the past 20 years. The Company will use one
suite on the Property as its corporate headquarters and continue to use the
remainder of the Property as office building rental or leasing space.
In consideration of services rendered to the Company in connection with
the selection and acquisition of the Property, the Company will pay Professional
Realty and Management Services, Inc. ("PRMS"), an affiliate of the Company, a
property acquisition fee of 4% of the purchase price of the Property or $104,000
when the equity for the acquisition of the Property is fully raised. PRMS will
serve as property manager for the Property and will be paid a monthly management
fee equal to 5% of the gross revenues of the Property.
The Company's other two real estate properties under contract are described in
Item 1, which is hereby incorporated herein by reference.
Item 3. Legal Proceedings
- ------ -----------------
The Company is not involved in any pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
No matters were submitted to a vote of security holders in 1997.
Item 4a. Executive Officers
- ------- ------------------
The following table sets forth certain information concerning the
individuals who constitute the sole executive officers of the Company:
<TABLE>
<CAPTION>
First Became
Name Age Position an Officer
---- --- -------- ------------
<S> <C> <C>
Philip Layne 78 Chairman of the Board 1995
Fredric B. Layne 47 President/Treasurer, CEO 1995
Douglas I. Layne 41 Secretary 1995
</TABLE>
2
<PAGE>
Fredric B. Layne is President, Chief Executive Officer, shareholder and
Director of Professional Realty and Management Services, Inc. This Company is
involved in the acquisition and management of commercial and residential real
properties. Since 1991, Mr. Layne has held executive and/or ownership positions
in several corporations involved in the management of and investment in real
estate.
Douglas I. Layne is a Secretary of Professional Realty and Management
Services, Inc. He has worked for the Company, or its predecessors since 1991.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------ -----------------------------------------------------------------
Matters
-------
The Company's common stock is known as common shares, $.001 par value.
On December 31, 1997, 374,125 shares of the common stock were issued and
outstanding.
On December 31, 1997, there were 31 shareholders of common stock.
Since commencing operations on January 13, 1995, the Company made no cash
distributions to holders of its common shares. No distributions are foreseen for
the future at this time.
Item 6. Selected Financial Data
- ------ -----------------------
Item intentionally left blank.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------ ---------------------------------------------------------------
Results of Operations
---------------------
The Company invests primarily in existing residential and commercial
properties in the Southeast and Southwestern Regions of the United States. The
Company intends to quality as a Real Estate Investment Trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code") for federal income tax
purposes. The Company has been capitalized primarily through a limited number of
investors through the purchase of units. At December 31, 1997, $1,560,000 was
owed to these investors. Changes in the Company's liquidity and capital
resources reflect the inability of management and their underwriters in the lack
of sales of shares to investors which effect the ability of the Company for
periodic acquisitions of properties by the Company. Similarly, the lack of
results from operations reflect decreases in income, and the capital base of the
Company.
Liquidity and Capital Resources
There was a significant change in the Company's liquidity during the year
ended December 31, 1997. During 1997, the Company was only able to sell 145,200
shares of its units to its investors bringing the total number of shares
outstanding to 253,600. The total gross proceeds from the shares sold in 1997
was $907,500. With this additional capital, the Company's gross capitalization
still decreased from $(743,410) at December 31, 1996 to $(1,260,907) December
31, 1997. Shares were sold through the Company's management to enhance the
financial structure of the firm.
The Company entered into an agreement on October 2, 1996 to purchase the
Kendale Gardens Apartments in
3
<PAGE>
Miami, Florida. The purchase price was $7,135,000 with a closing date of
November 15, 1996. A deposit of $10,000 was required at the time the agreement
was signed. On December 17, 1996, the agreement to purchase Kendale Garden
Apartments dated October 2, 1996, was amended. The amended agreement reduces the
purchase price to $6,925,000 if purchased by February 28, 1997. A deposit of
$15,000 was required upon the execution of the amended agreement. On February
28, 1997, the agreement to purchase Kendale Gardens Apartments dated December
17, 1996, was amended. The amended agreement increases the purchase price to
$6,975,000, if purchased by April 30, 1997. A deposit of $25,000 was required
upon the execution of the amended agreement. On June 5, 1997, the agreement was
amended to extend the closing date to July 31, 1997. A deposit of $25,000 was
required upon the execution of this amendment. In June 1997, these deposits were
written-off due to the purchase not materializing.
The Company entered into an agreement on December 20, 1996 to purchase
the Spring House Apartments in Tamarac, Florida. The purchase price was
$16,490,000 with a closing date of February 28, 1997. A deposit of $25,000 was
required and paid in January 1997. The apartment building purchase will be
financed by a private placement or a public offering of the Company's stock. On
January 21, 1997, the agreement to purchase Spring House Apartments dated
December 20, 1996, was amended. The agreement extends the closing date to March
28, 1997. A deposit of $100,000 was required upon the execution of the amended
agreement. On March 25, 1997, the agreement to purchase Spring House Apartments
dated January 21, 1997 was amended. The agreement extends the closing date to
May 5, 1997. A deposit of $25,000 was required upon the execution of the amended
agreement. As of June 5, 1997, the Company has not closed on the property. In
June 1997, these deposits were written-off due to the purchase not
materializing.
The Company is working on additional funding by a private placement or a
public offering of the Company's Stock.
The Company intends to hold all of its properties on a totally
unleveraged basis. However, the Company will borrow in conjunction with the
purchase of properties. The full balance of the debt incurred will be repaid
through the sale of additional shares.
Cash and cash equivalents totalled $153,552 on December 31, 1997 versus
$29,660 on December 31, 1996. During the year, the Company did not distribute
any return of capital or dividends to shareholders.
While the Company is always assessing potential acquisitions, no material
negotiations, commitments or agreements to purchase additional properties
existed at year end. The Company expects to acquire new properties as additional
funds are valuable.
The recoverability of a major portion of the recorded asset amounts shown
in the accompanying balance sheet is dependent upon commencement of successful
operations of the company, which in turn is dependent upon the Company's ability
to finance its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
and liability amounts which might result from the above uncertainties.
The Company has and will continue to take a number of steps to reduce its
operating losses. The Company will continue to increase its efforts in marketing
their initial public offering the Company's shares to raise funds. Management
believes that as a result of the action stated above, the Company can continue
in existence for the next twelve months; however, there is no assurance that
such action will be consummated or will eliminate the Company's need for
additional capital.
Results of Operations
The results of the Company's operations for the year December 31, 1997
does include the one property acquisition where the Company relies on rental
income generated by the property for its cash for the payment of
4
<PAGE>
operating expenses. The Company has had no other sources of revenue. The Company
had a net loss of $1,201,157 compared to a loss of $567,691 in 1996.
Selling, general and administrative expenses increased $709,647 to
$1,237,901 in 1997, compared to $528,254 in 1996. The increase is due to the
write-off of deposits of $250,000, compensation expense from granting stock
options of $434,160, expenses incurred in operating the office building, and
increase in general corporate expenses.
Interest expense increased by $127,959 to $168,124 in 1997 compared to
$40,165 in 1996. The increase is due to the increase in notes payable to
investors which increased by $882,500 in 1997.
The Company's other source of income is the investment of its cash and
reserves. The Company had an increase in interest income to $1,439 in 1997 from
$1,120 in 1996. The Company believes with its efforts in marketing their initial
public offering of the Company's shares to raise funds, there will be an
increase of interest income to the Company.
Impact of Inflation.
The Company does not believe that inflation had any significant impact on
the operation of the Company in 1997. Future inflation, if any, would likely
cause increased operating expenses, but the Company believes that increases in
expenses would be more than offset by increases in rental income. Continued
inflation may also cause capital appreciation of the Company's properties over
time, as rental rates and replacement costs increase.
Item 8. Financial Statements and Supplementary Data
- ------ -------------------------------------------
The Financial Statements of the Company required to be included in this
item are set forth in item 12 of this report and are hereby incorporated herein
by reference.
PART III
Item 9. Directors and Executive Officers of the Company
- ------ -----------------------------------------------
The information required by this item is incorporated by this reference
to the Company's Prospectus dated February 15, 1996, under the heading
"Management", pages 41 through 44.
Item 10. Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
The information required by this item is incorporated by this reference
to the Company's Prospectus dated February 15, 1996, under the heading
"Principal Stockholders", pages 39 through 40.
Item 11. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
The information required by this item is incorporated by this reference
to the Company's Prospectus dated February 15, 1996, under the heading
"Conflicts of Interest", pages 28 through 30.
Item 12 Exhibits and Financial Statement Schedules.
- ------- ------------------------------------------
(a) Documents filed as part of the report
5
<PAGE>
1. Financial Statements
Independent Auditors Reports of Grant Thornton LLP (included as page
F-1 of this report)
Balance Sheets
December 31, 1997 and 1996
Statement of Operations
Years ended December 31, 1997 and 1996.
Statements of Stockholders' Equity
Years ended December 31, 1997 and 1996.
Statements of Cash Flows
Years ended December 31, 1997 and 1996.
Notes to Financial Statements
2. Financial Statement Schedule
All other financial statement schedules have been omitted
because they are not applicable or not required or because
the required information is included elsewhere in the
financial statements or notes thereto.
3. Exhibits
Incorporated herein by reference are the exhibits listed under "Index
to Exhibits."
6
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 31st day of March
1998.
INVESTMENT INCOME PROPERTIES OF
AMERICA, INC.
By: /s/ Fredric B. Layne
-------------------------
Fredric B. Layne
President
By: /s/ Douglas I. Layne
-------------------------
Douglas I. Layne
Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Capacity Date
- ---------- -------- ----
<S> <C> <C>
/s/ Philip Layne
- --------------------------
Philip Layne Director, Chairman of the Board March 31, 1998
/s/ Fredric B. Layne
- --------------------------
Fredric B. Layne Director, President & Treasurer March 31, 1998
/s/ Dr. Winston Mclean
- --------------------------
Dr. Winston Mclean Director March 31, 1998
/s/ Ela Meireles
- -------------------------
Ela Meireles Director March 31, 1998
- --------------------------
Richard Hewitt III Director March 31, 1998
/s/ Annie Betancourt
- --------------------------
Annie Betancourt Director March 31, 1998
/s/ Richard Arthur
- --------------------------
Richard Arthur Director March 31, 1998
/s/ Pedro. J. Martinez-Fraga
- --------------------------
Pedro. J. Martinez-Fraga Director March 31, 1998
/s/ Carl R. Walston
- -------------------------
Carl R. Walston Director March 31, 1998
</TABLE>
7
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
<TABLE>
<CAPTION>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of the
Company. (Exhibit 3.1)*
3.2 Bylaws of the Company (Exhibit 3.2)*
10.1 Advisory Agreement between the Company and F & P Realty
Advisors, Inc.*
10.2 Form of Property Management Agreement between the Company
and Professional Realty and Management Services, Inc. (Exhibit
10.2)*
10.3 Property Acquisition/Disposition Agreement between the Company
and Professional Realty and Management Services, Inc.
(Incorporated by reference to the Exhibit of the same number
filed with the Commission in the Company's registration
statement on Form S-11 (Registration No. 33-95758)). This is a
management contact with a company affiliated with officers of
the Company.
10.7 Registrar, Transfer Agent and Disbursement Agent
Agreement between the Company and American Stock & Transfer*
</TABLE>
* to be filed by amendment
8
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Investment Income Properties of America, Inc.
We have audited the accompanying balance sheet of Investment Income Properties
of America, Inc. as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the period from January 4,
1995 (inception) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Investment Income Properties of
America, Inc. at December 31, 1995 and 1996, and the results of its operations
and its cash flows for the period from January 4, 1995 (inception) through
December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $567,691 for the years ended December 31,
1997, and as of that date, the Company=s liabilities exceeded its assets by
$743,410. These factors raise substantial doubt about the Company=s ability to
continue as a going concern. Management=s plans in regard to these matters are
described in Note H. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Grant Thornton
- ----------------------
Grant Thornton
Fort Lauderdale, Florida
April 22, 1997 (except for Note B which is dated June 5, 1997 and Note I which
is dated June 30, 1997)
F-1
<PAGE>
Investment Income Properties of America,Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
On June 30, 1997, the Company purchased an office building in Pompano Beach,
Florida for $2,600,000. The purchase was financed through a purchase money
mortgage of $2,080,000 and funds provided through loans by individuals who also
own shares in the Company. The mortgage bears interest at 1% below the prime
rate, is payable monthly, and is collateralized by the property. During any time
the mortgage is outstanding, the seller has the option to convert the mortgage
and note to common stock of the Company.
The accompanying notes are an integral part of these statements.
F-2
